Wheat prices have experienced a significant decline, reaching a three-year low, primarily due to a substantial increase in Russia’s yield. The surge in Russian wheat production is helping to fill the export gap left by Ukraine’s shortfall, as reported by the Financial Times.
Since the end of July, prices have dropped by more than 20%, following an upgrade of Russia’s wheat export outlook by the US Department of Agriculture (USDA). The USDA now predicts that Russia will export 48 million tons of wheat for foreign sales.
Michael Magdovitz, a senior commodity analyst at Rabobank, explained, “We have seen wheat prices substantially decline basically as a result of Russia.” Ukraine’s share in global wheat exports is also expected to decrease from 9.2% in the 2021-2022 agricultural year to 6.4% during the 2023-2024 harvest season, according to estimates from S&P Global.
On the other hand, Russia, as the world’s largest exporter, is set to supply 22.5% of global wheat exports in the current agricultural year, compared to 15.9% the previous year. Magdovitz added, “Ukraine’s loss has been Russia’s gain.”
S&P Global Commodity Insights estimates that Moscow will export 47 million tons of wheat this year. However, Paul Hughes, the chief agricultural economist at S&P Global, suggested that the figure may reach 50 million tons.
Traders expect that the abundant supply from Russia will contribute to keeping prices low, which offsets shrinking yields in other major wheat-producing countries like Argentina, Australia, and Canada, where current output has been downgraded.
Global wheat prices have plummeted by more than 50% since reaching a peak of $13 per bushel following the outbreak of hostilities in Ukraine last year. Currently, wheat futures are hovering near $5.9 per bushel in mid-September, close to the lowest level in nearly three years.
While market players anticipate a continued decline in wheat prices, economists warn that an escalation of tensions between Ukraine and Russia in the Black Sea region could trigger a new spike. This could occur at a time when inflation is already causing other agricultural commodities, such as cocoa and coffee, to reach multiyear highs.
In conclusion, the exceptionally strong yield in Russia has resulted in a significant decline in wheat prices, reaching a three-year low. This surge in Russian wheat production has helped offset the export shortfall left by Ukraine. While the decline in prices is expected to persist, escalating tensions in the Black Sea region could have repercussions on wheat prices, considering the current inflationary pressures affecting agricultural commodities worldwide.